Financing plays a crucial role in the growth and development of all businesses. However, companies with inadequate funding fail to meet their set objectives.
A company can raise capital through two methods: debt and equity. Raising money through equity is not only challenging but also involves profit sharing. However, there are no such obligations with debt capital financing. Debt capital includes taking a loan from financial institutions to meet different business expenses. Over the last few years, India has improved its global ease of doing business index rankings. Besides digitisation, the government has also introduced various loan schemes to support businesses in the country. But, since Business Loan terms and conditions are stringent, business owners should make it a point to explore loans from lending insitutions like NBFCs.
Read on to learn more about the Business Loan by government schemes in India.
What is a Business Loan?
A Business Loan is a financial product that allows entrepreneurs to borrow funds from lenders. The company taking a Business Loan has to repay the same along with an interest fee as per the terms and conditions of the agreement. A Business Loan can be taken to meet a wide range of business expenses. Some companies take a Business Loan to finance their day-to-day operations, whereas others borrow funds for growth and expansion. Avail the right business loan is crucial to the development of a company. Therefore, comparing the cost of borrowing money against its benefits is essential.
Business loan schemes by the Indian government
Over the last decade, the Indian government has created a conducive business environment for start-ups and established corporations. Here are some popular Business Loan schemes by the government of India.
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Pradhan Mantri MUDRA Yojana (PMMY)
Launched in 2015, the Pradhan Mantri MUDRA Yojana (PMMY) is a Business Loan scheme that provides loans up to INR 10 lakh to non-corporate, non-farm small/micro enterprises. MUDRA stands for Micro Units Development and Refinance Agency. The aim is to provide refinancing aid to banks and NBFCs for lending money to small/micro enterprises. This scheme has three loan categories: Shishu, Kishore and Tarun. Each category represents different stages of growth. The interest rate charged is lowest for Shishu (between 1% to 12%) and highest for Tarun (between 11% to 20%).
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Credit Linked Capital Subsidy Scheme (CLCSS)
The Credit Linked Capital Subsidy Scheme (CLCSS) was brought into effect by the MSME ministry to boost the production capacity of MSMEs by offering capital at subsidised rates. The aim was to help small and medium-scale businesses leverage the power of the latest technology and equipment. Under this Business Loan scheme, a company can gain a capital subsidy of 15% on loans from different financial institutions. It is crucial to check the eligibility for this scheme before applying for business loan .
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PSB Loans in 59 Minutes
PSB Loans in 59 Minutes is an online marketplace launched by the Indian government to provide quick Business Loans to MSMEs. Under this scheme, businesses can get a loan between INR 10 lakh to 5 crores in less than an hour from both public and private financial institutions. The interest rate for these loans starts at 8.5% per annum.
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National Small Industries Corporation (NSIC)
The National Small Industries Corporation is a government agency formed by the MSME ministry to provide marketing and credit support schemes for micro, small, and medium enterprises. It takes a holistic approach to help small and medium businesses grow in their respective domains. Under the credit scheme, the NSIC provides finance for the procurement of raw materials and marketing expenditures.
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Credit Guarantee Fund Scheme for Micro & Small Enterprises (CGFMSE)
The government of India launched the CGFMSE scheme to provide collateral-free credit to micro, small and medium enterprises. Most MSME businesses fail to provide collateral which is mandatory for most Business Loans. This scheme aims to bridge the collateral gap for availing of business loans.
Debt financing is a great way to raise capital from financial institutions without having to share profits from business operations. Though, the Indian government has started numerous Business Loan schemes to support the MSME sector, these are not available to everyone. On the other hand, a business loan from an NBFC is open to all enterpreneurs as long as they meet the eligibility criteria!
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